I don't really see an integrated ereader as being significant, not unless there is some big technology break through. Right now, that's a fading market. It's much more practical to produce a quality app than it is to produce hardware.
I also think that any competition that is based on pricing is doomed to fail. Amazon has deep pockets and would win a race to the bottom with anyone. Agency pricing would actually be better for competition. That way, a deep pocketed, established company like Amazon couldn't simply discount the competition out of existence.
Competition based on quality experiences is much more likely to be sustainable. A membership based model like Audible's monthly credits also might work, but once again, it has to be based on quality of the experience. That is where Amazon is vulnerable.
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